Mortgage fraud on the rise: who are the real losers?

The FBI says that 2008 is shaping up to be a "record year" for mortgage fraud, with nearly 30,000 "suspicious activity reports" filed in the first half, compared with 46,000 for all of 2007.

According to the New York Times, "the biggest surge in federal law enforcement activity has focused on "fraud for profit" schemes, in which mortgage insiders - appraisers, real estate agents, loan officers, and lawyers - often work in teams. They falsely inflate a home's value, get a huge mortgage to buy it (usually using false identities), split the profits, and then disappear."

And then there are the more plain vanilla, less conspiratorial forms of mortgage fraud, including inflating income on loan applications, a practice that appears to have been encouraged at JPMorgan. The TowerGroup reports that lenders will lose about $2.5 billion to mortgage fraud this year.

As with many forms of crime, the victims of mortgage fraud included pretty much anyone who wasn't participating: banks have to increase fees to cover the cost of losses to fraud, and loans made to people who lied about their finances flushed funny money into the system, inflating property values and pricing many first-time home buyers out of the market. It's like trying to compete with Flinstones Chewables in a league where everyone else is on steroids. The extent to which mortgage fraud played a role in the housing bubble remains to be seen, but it's likely that fraud and lax lending practices were a substantial drivers of soaring home prices.

Another angle on this: because people used mortgage fraud to buy homes they couldn't really afford (If they could really afford them, there would have been no need to lie!), there's a good chance that many of the people who stand to benefit from plans to "help" homeowners facing foreclosures engaged in fraud to acquire their homes.